I am shocked that reality is worser than than their dream world.
"Now a significant portion of the collapse is behind us."
CR - You're right in saying that you're an optimist 
I am shocked that reality is worser than than their dream world.
Fudgidity Rules OK.
"But I think it is premature to say that the more adverse scenario is meaningless."
No offense intended, but that would be because you have been a major Polyana throught this entire mess.
[Paul Miller, an analyst at FBR Capital Markets] said. "But if it peaks closer to 12 percent, nobody makes it. Or very few people make it."
It is a good thing that none of those 19 banks have any exposure to the California market where 12%, in the famous words of Gary Watts; "is in the bag."
One could assume that reality is far worse than what can be modelled or discussed in public.
Roubini wrote a nice summary article of the comments here over the past few weeks.
Maybe the stress tests are not meanless, but they are not meaningful either - and lets remember that THE BANKS do the tests, not the government. The tests were DESIGNED to be passed, and hoocoodanode, they will be be passed.
Even if the tests were meanful, since we'll not see actual bank numbers, the whole exercise is a sham. (I need to buy some ShamWows!).
Obama needs a shadow set of economic advisors (the Saturday morning alternate reality group). We are being lulled into disaster.
The containment is spreading at an accelerating rate....
Tom Stone
Don't believe much that comes out of the government these days. We are at war with the central bankers and the government is clearly on their side.
The economists who never saw this coming and developed the models that broke when it did are the same ones predicting the scenarios and designing the stress test.
Roubinj really needs to work on his post titles
At least we don't have to worry about exogenous shocks to the system,much.No potential collapses of client states on the horizon except Pakistan and Saudi and...someone hand me the glue...
Tom Stone
Seems to me fundamentals show historically sharp contraction.
Sad to say, I think you're gonna be proven to be a rosy optimist, CR.
Stress-testing fudge-packers of a financial nature quite often reveals HAIDS*, for which there is no known cure.
*Hedge Assets Immunity Defense Syndrome
I agree there is no real stress test, and the more adverse scenario is the real baseline. But I think it is premature to say that the more adverse scenario is meaningless.
It's premature to say a scenario is meaningless for a stress test that's not?
Ummm, so does Mr Roubini draw the conclusion that GS might struggle as a result of this down economy ?
The unemployment rate was 8.1% in Q1 - above both the baseline (7.8%) and more adverse (7.9%) scenario rates.
And maybe there won't be a downward revision of the Q1 number....like there has been for the last 8 months.
I think everything they are doing is to build plausible deniability, to deflect the blame. They create these "more adverse" scenarios so they can point to them later and say "See? We had no clue back then how bad things were!"
Have you not heard?.....The WORST is behind us! The sad truth that the Worst is in the form of the Gov't and Bankers bending us over and having prison sex with us!!!!!!!
"Now a significant portion of the collapse is behind us."
CR - You're right in saying that you're an optimist
I know whats causing the problems, too many optimists!!
MoT, from the FT web site no less, Buiter agrees. The meme is mainlining:
"I used to believe this state capture took the form of cognitive capture, rather than financial capture. I still believe this to be the case for many, perhaps even most of the policy makers and officials involved, but it is becoming increasingly hard to deny the possibility that the extraordinary reluctance of our governments to force the unsecured creditors (and any remaining non-government shareholders) of the zombie banks to absorb the losses made by these banks, may be due to rather more primal forms of state capture.... Until the authorities are ready to draw a clear line between the existing banks in western Europe and the USA, - many or even most of which are surplus to requirements and have become parasitic entities feeding off the tax payer - and the substantive economic activity of bank lending to non-financial enterprises and households, there will not be a robust, sustained recovery."
http://blogs.ft.com/maverecon/2009/04/the-green-shoots-are-weeds-growing...
So why, wise heads, is the humble assembly of cranks at the SF Fed the rather singular instance of public outcry? Are we to go down in history as a citizenry of Patty Hearst's in reverse? I just don't get it. Maybe it's time to repatriate myself...
If they handle the GM bankruptcy flawlessly and without massive economic upheaval, then the argument strengthens for bankrupting the TBTF banks, and ignoring their warnings of massive economic upheaval.
-------
http://www.afterthecrash.net - After the Crash, a blog shared by the CR Commenting Community. Hoopajoop on over.
CR,
Not trying to "pile on", but I've got to take exception with this statement:
Now a significant portion of the collapse is behind us.
I respectfully disagree. A significant portion of the collapse has been backstopped by the Treasury; thus creating the largest and final bubble in this epic tragedy, the Full Faith and Credit Bubble. When it pops, it takes everything along with it.
I'm on the fence as to whether this is hitting bottom or whether there's another leg down. People still aren't disgusted at the idea of real estate as an investment for instance.
For now however the greatest danger is to credibility. Whatever the results of the stress tests or the input variables or the subsequent revisions if they aren't believable we have to have another leg down based on lack of confidence alone.
Did you guys break the market ??? 7 minutes with the same spx ?
.............................
If you don't take your profits, someone else will.
you guys just don't get it!
Goldman Sachs is going to the Moon....all is well! just buy some!
130+
CR, nice analysis of Roubini's blog post.
FWIW I think you're much closer to the 'realist' camp than to the 'optimistic' crowd.
Not all of us are waiting for The Inevitable Greater Depression, though I will admit the majority of commenters here seem to be.
I think the worst GDP numbers will be right now, i.e., 1Q09 and 2Q09. The rate of decline should slow after that.
The one thing fancy charts and computer prognostications can never fully figure, is the psychological mindfield.
"Now a significant portion of the collapse is behind us"
A bottom?.
Which of the three parameters are the most sensitive? From CR's comments he implies that unemployment is the most important and it is what is tracking well above the models.
The rate of decline should slow after that.
---------------------------
So it still goes down....
Goldman Sachs is going to the Moon....all is well! just buy some!
130+
This aint gunna end well!
"From CR's comments he implies that unemployment is the most important "
the real drag is those who continue to be unemployed...higher highs on the front number but the length of time will be very painfull
The minimum wage is China is around a buck an hour, while it's closer to $8 in the USA.
Are we headed towards a global $3 an hour minimum wage?
Devaluing the greenback by 2/3rds would flatten out the paying fields, worldwide.
Roubini is getting kind of saucy these days.
Is this graph for real? If so it may be time to load up on more stocks.
So it still goes down....
Yeah, I think we bump along the bottom for a couple years, sometimes up 0.x%, sometimes down 0.x%.
I don't see a plunge into oblivion as many here seem to expect.
JimPortlandOR (member) wrote on Mon, 04/13/2009 - 9:11am.
Maybe the stress tests are not meaningless, but they are not meaningful either - and lets remember that THE BANKS do the tests, not the government. The tests were DESIGNED to be passed, and hoocoodanode, they will be be passed.
They may not have the meaning you want them to have, but they are certainly meaningful as they will determine the size of each bank's portion in the next bailout round.
Under the circumstances, I continue to be relieved by the shallow worst-case scenarios being considered. More realistic proejctions would just mean a bigger transfer of funds.
It's hard to define "oblivion", but we are on course to follow the Dirty Thirties, where over 90% of the businesses in business in 1929, were out of business by 1933.
What's the next bubble to drag us out of this mess? Internet, check. Credit, check. What's next, more credit, devalued dollar? Where's that positive GDP coming from?
I too am a non-plunger, however, I don't think the bear market is over just yet. I think the financials are gonna bite Mr. Market at least a couple of more times.
.............................
If you don't take your profits, someone else will.
Chainsaw (member) wrote on Mon, 04/13/2009 - 7:47am.
CR,
Not trying to "pile on", but I've got to take exception with this statement:
Now a significant portion of the collapse is behind us.
I respectfully disagree. A significant portion of the collapse has been backstopped by the Treasury; thus creating the largest and final bubble in this epic tragedy, the Full Faith and Credit Bubble. When it pops, it takes everything along with it.
Chainsaw: your comment is spot on. Sovereign debt is the last bubble. As long as investors believe future taxpayers will pay them off, this bubble continues. But if the borrowing AND printing continues by the trillions, confidence will be tested.
Oblivion = slow decline with a continuing down trend with no glimmer of a real recovery.
So, these are stress tests of banks, and they don't involve any interest rates, or interest rate spreads? I think the spread of their borrowing to lending cost is pretty relevant. Nominal rates for mortgages might be relevant for home price declines.
Is Roubini suggesting the stress tests be revised to reflect reality?
--------------------------------------------------------------------------
Learn the 7TH Amendment maggot!
Red Beckman - Fully Informed Jury
http://video.google.com/videoplay?docid=7385583011526915030&hl=en
Yep, the capture meme is mainlining.
And frankly, I've come to think that "primal capture" is correct in that we're practically living in a fascist nation. No boots on the immediate horizon, but if continues...
homedad43
popeye, I don't think the bear market is over either. I'm sitting on SH looking for lower lows this year, though I think RWM would have been a better choice.
stress test = buying time and hope the economy picks up before we all fail test.
popeye, I don't think the bear market is over either. I'm sitting on SH looking for lower lows this year, though I think RWM would have been a better choice.
Historically speaking stocks are "right where they should be". The problem is that stocks typically fall about 50% below "right where they should be" in a serious recession, so by historical measures at least, stocks prices never really priced in a steep recession at all.
This doesn't mean they necessarily will in the short-term, but it should make anyone expecting a rebound cautious.
Has the leap from fiat paper money to fiat digital money been fully appreciated in it's scope?
It was as big a move as going from the gold standard to a paper standard was, wouldn't you say?
It's what brought us here to the precipice...
OT-
For those of you who disparage the PPT theory:
"In this light, the program trading spike over the past week could be perceived as much more sinister. For conspiracy lovers, long searching for any circumstantial evidence to catch the mysterious "plunge protection team" in action, you should look no further than this."
From Mish
Mish
BTW, I don't truly believe in the PPT either; It's just an interesting note-
CalculatedRisk (member) wrote on Mon, 04/13/2009 - 10:39am.
Byzantine_Ruins, maybe ...
It is amazing how far we've come. I was called a raving lunatic in 2005 for projecting house price declines of 40% or more in some areas
Not by me.
Now I'm "too optimistic". Maybe ... but I'm definitely more optimistic looking forward than I was in the 2005 to 2008 time frame.
I think that that the credit panic led to the establishment of a new set of global credit terms. We are now going to have a viability discovery period for the global economy. I think the global macro framework was thoroughly infiltrated by the flight-to-yield bubble so now we get to find out where in the world was actually Temecula, CA all along.
IMO, it's going to be a broad-based global downturn as really vast quantities of malinvestment get washed out of the global framework. My personal feeling is that this will involve the US ending up in default but I think regardless of the fate of the dollar / Treasuries thinger, we haven't seen the generational shakeout in real global capacity yet.
Back then we had the collapse in front of us. Now a significant portion of the collapse is behind us.
We are certainly past the credit panic. I think we differ on what secondary effects we see on the rest of the real economy. I would like to be wrong but I think the new credit terms are going to see marked global economic dislocations.
It's what brought us here to the precipice...
-----------------------------------
Not at the precipice not but in the abyss. Amazing how many don't realise this yet.
China is no longer enforcing their recently passed minimum wage laws.
But yes, their consumer is poised to slop up all excess demand (?)
excess capacity, I mean.
"Have you not heard?.....The WORST is behind us! The sad truth that the Worst is in the form of the Gov't and Bankers bending us over and having prison sex with us!!!!!!!"
Unfortunately, I suspect that this is still "behind us";-)
I sometimes feel I'm just out of goose step with everyone else---
How much longer do we "enforce" our minimum wage laws?
In the USA, this fair land of supply and demand-there are presently many more people than available jobs.
HOG reports Thurs - up 120% in the past month. They may need a bailout.
GM
Chrysler
Nissan
Toyota
Suppliers
In your average big city/metro area how much of the local economy was real estate dependent? 15%?
Builders
Building supplies
IT
Office supplies
Retail
For the bad times to quit rolling you need people to start buying. Where is the extra money going to come from? Wages? Credit?
Just cause we hit a ledge does not mean we have quit falling. What happens if TARP does not work? How many times can this kind of money be spent?
http://afterthecrash.net - Home of the Doomer Story Portal and Other Stuff
The short sale ban for financials (over 1000 stocks qualified) ran until 12 a.m. on October 9. The market "bottomed" on October 10 at S&P 839.8. The markets have been moving sideways for 6 months. We have done nothing. No big money has committed to buying or selling. We are still in shock. Nothing has been fixed. We are all waiting for Godot.
"Historically speaking stocks are "right where they should be". The problem is that stocks typically fall about 50% below "right where they should be" in a serious recession, so by historical measures at least, stocks prices never really priced in a steep recession at all."
Does your argument hold up when one takes inflation into account? dshort.com indicates that with inflation adjustment, the market is already below the median, and if inflation kicks in big time, we'll be down 50% in no time-
Whether Roubini is right on target or not he is seeing the same reality as I am. The death spyrial is still in full swing and far from bottom.
STRESS TEST: "Here are the questions and here also included are the answers for a "passing grade" and the answers for an "almost failing grade". Please take this testing form and answer the questions honestly and in "any-old-way-you-want". Your passing this test may mean the difference between your bank living thru this challenge round and going on to the next round of "Big Boy Banks in Make-Believe-Magic-Land", or dying a slow painful death at the hands of the 4% of aroused citizenry that can still identify the "working end of a pitchfork".
- - - - -
Black 
Ranch
If we lie long enough, and layer the lies, and if we make everyone complicit in the lies, we will believe. And when we believe the lies shall become truth. And all will be well. 2+2=WHATEVER WE WISH IT TO BE. It's always been just a confidence issue.
"Spiral vs. Spiral"
(perhaps some budding cartoonist can do a take-off of "Spy vs. Spy" from Mad Magazine)
If the worst is behind us why is GM still headed to bankruptcy? Why is unemployment predicted to rise for 6 more quarters?
Just some perspective. For 2008 the worst prediction "real" economists made for housing y-o-y was 6-8%. How'd that turn out? Because they were so wrong they've gotten more pessimistic and predicted -10% for 2009.
IMO the worst would be over if we had ripped off the bandaid but all the paper accounting being performed has prolonged the length of the downside beyond historical norms.
i am speechless,but i can read
What really makes the stress test meaningless, as I understand the process, is that the results aren't going to be made public and everyone passes anyway. If you are under-capitalized, awash in toxic assets and insolvent you just get bailed out again. So what was the point? I also wonder how these stress tests are being implemented in terms of the new change to mark to market rules.
Beware the Jabbertalk, lost one!
The laws that invite fraud, the clauses that catch!
Beware the Jubjubank's word, and shun
The frumious Bankersnatch!
NEW POST at Calcluated Risk.
Ways to view:
Dead simple, read only interface at: http://users.thelink.net/bobn/CR
CRC-like interface at http://realize.org/cr/crcizer/phpCRo.php
Full Blown Interface at http://www.hoocoodanode.org/
For live chat, and the new Mishbot feature, as well as notice of new posts on other blogs, join us in IRC.
To access IRC with firefox, install the chatzilla add-on and go to irc://irc.realize.org:9996/calculatedrisk.
Or set your IRC client for server irc.realize.org port 9996 and /join #calculatedrisk.
Feed back via bobn
I'm a buyer... @ 550 SPX.
so what about the CDS on all the GM paper? this gonna be another $12billion hoovering by GS?
Hey guys, Roubini's record has been one of erring on the bright side, even if he was the most bearish mainstream economist. If he says the adverse scenario is toast, then the reality will be much, much worse.
Although CR is correct in stating that much is already behind us, there's still plenty more yet to come and it's going to be devastating.
p.s.: Dawg, I can't believe you're wavering a bit. The fundamentals haven't changed.
-----
"Hope for the best, prepare for the worst"
Rick Santelli was on fire going to the mat with Steve Leisman on the Tea party subject.
--------------------------------------------------------------------------
Learn the 7TH Amendment maggot!
Red Beckman - Fully Informed Jury
http://video.google.com/videoplay?docid=7385583011526915030&hl=en
test
Ken/CR:
test.
not sure if this is everybody, but when I post a comment there is no "send" or "post" button, only a "save" button. it looks like hitting "save" sends the post to CR, but it is confusing.
thanks in advance.
I can understand that for "the worst to be behind us", unemployment can still be negative, as it is a lagging indicator. That doesn't account though for the following problems still to be played out:
Unfortunately, I'd say the worst is still ahead of us. There's much that isn't even listed above - how about our debt and its consequences?.........
- - - - -
Black Ranch
This administration never intended to have honest stress tests. It is in bed with Wall Street and its culture of lies and will keep on lying to the public about the situation as long as that seems politically expedient. People who thought they were getting a new beginning of honesty were deluded fools.
" saagua wrote on Mon, 04/13/2009 - 9:03am.
This administration never intended to have honest stress tests. It is in bed with Wall Street and its culture of lies and will keep on lying to the public about the situation as long as that seems politically expedient. People who thought they were getting a new beginning of honesty were deluded fools."
I agree. My hope is that, by the time a year in office has passed, the administration realizes that sticking with its Wall Street friends will lead it to failure and the nation to misery. And is tough enough to cut them loose, go long populism, and change course.
Or if not.... Hooverland.
"For the unemployment rate, Roubini is correct. The unemployment rate was 8.1% in Q1 - above both the baseline (7.8%) and more adverse (7.9%) scenario rates. "
The April release from the Bureau of Labor Statistics reports on the employment situation during March 2009 (end of Q1). This actually shows the unemployment rate at 8.5%, significantly worse than both the baseline and more adverse scenarios.
CR - Am I missing something? Why are you using 8.1% for your comparison?
Rob, your nick sounds familiar. We have probably crossed paths on some forum or another at some point in time. The Rob I knew was from Cali.
My advise is simple, keep your money in your mattress.
My feeling is that the markets are being manipulated by the big banks right now, and that nothing is as it seems. Goldman is right in the middle of it. as usual, no new news there.
There's a couple of places that are writing about that now. One is Karl Denninger at Market-Ticker.org, the other is Tyler Durden at zerohedge.blogspot.com . There are others, I'm just not that familiar with their work.
Ways to view comments on this thread:
Dead simple, read only interface at: http://users.thelink.net/bobn/CR
CRC-like interface at http://realize.org/cr/crcizer/phpCRo.php
Full Blown Interface at http://www.hoocoodanode.org/
For live chat, join us in IRC.
To access IRC with firefox, install the chatzilla add-on and go to irc://irc.realize.org:9996/calculatedrisk.
Or set your IRC client for server irc.realize.org port 9996 and /join #calculatedrisk.
Feed back via bobn